Analysts see trouble on the horizon for Netlfix

Shane McGlaun, 18th September 2012

Netflix saw its stock price slide almost 6% yesterday after the publication of a rather pessimistic report published by analysts at Macquarie Securities.

The report - penned by Tim Nollen and James Kopelman - highlights potential issues regarding Netflix's long-term prospects for maintaining profits and subscribers. The study spans 35 pages and noted, among other things, that Netflix's profit margins may never return to previous levels due to higher fees demanded by studios.

The primary problem for Netflix? Subscriber growth is slowing, while TV movie studios are demanding higher fees to license content. Clearly, without new content, Netflix will find it difficult to lure new subscribers. The decline in subscribers can likely be attributed to competing streaming services like Amazon Prime and Comcast.

As such, Netflix could be faced with the difficult decision of attempting to raise prices for its streaming service yet again. As you may recall, Netflix ran into massive subscriber backlash last year when it raised prices by as much as 60% for customers who wanted to rent DVDs through the mail and stream video over the Internet. Subscribers canceled subscriptions in droves and sent Netflix stock plummeting. The stock has yet to recover to pre-price increase levels.

The Macquarie analysts note that Netflix is expected to try and raise as much as $300 million via the sale of stock or corporate bonds - as the streaming video and DVD rental company managed to generate $400 million by selling stock and convertible notes last year.

Adding to concerns for Netflix's future viability is the fact that some of its popular programming from networks, including A&E and the History Channel are expiring soon - which will likely lead to the removal of Storage Wars, Ice Road Truckers and Dog the Bounty Hunter.

"We renew programming that proves successful and generates viewing among our members and we expire those programs that do not," Ted Sarandos, Netflix's chief content officer, said in an official statement. "While we do not comment on our deals and partnerships, expect some of the A&E and History programming to drop and some to remain on Netflix."